Benfool, you are amazing! Great info this and it makes sense. I...

Benfool, you are amazing! Great info this and it makes sense.

I have a few questions while you are here.

You say those cases are often estimated wrong, and I can see your point since I have a background in analysing insurance companies who pays Slater and Shine. Insurance companies liability is Shine's revenue, and they often estimate wrong and I can see it in their 'claims outstanding' balances. The main thing is are they estimating wrong evenly, as in evenly distributed on the positive and negative side, without a skew to say the aggressive side in order to inflate accounting profit.

This is how insurance companies estimate claims outstanding which is just negative WIP. They take a stab with actuaries using past data on how many cases are out there potentially and how many cases are already in court. Every year an adjustment must be done to the claims outstanding given that certain cases have settled and need to be paid to lawyers and customers.

Cases that have settled gets removed from claims outstanding and added to accounts payable. While new potential cases are added to to claims outstanding. Finally an adjustment is done to the numbers to reconcile the mistake of last year in estimation with this year's real data. For example some numbers for illustration:

Claims outstanding Balance
Opening balance = 2500
New cases = 800
Cases settled = -500 (transferred to accounts payable)
Adjustment to reconcile with estimation = -200 (estimate was -500 above line, but it was actually -700, additional -200 adjustment also transferred to accounts payable)
New balance = 2600

Is this how WIP account is maintained from your knowledge? Key line being the adjustment to reconcile with estimate, since that tells me if the insurance company estimates are often over or under or just right in the past.

Also, are there any reasons why many insurance companies can disclose their 'claims outstanding' accounts while law firms such as Shine and Slater refuses to have a full opening balance and closing balance account disclosure on their financial report? The key figure I am interested in is the adjustment to reconcile settlement with estimation. This figure allows me to see if Shine has been in the past over estimating, under estimating, or accurately estimating to the real settlement amount. I mean do law companies have a reason such as those information will give their competitors an edge or something like that so that's why they can't disclose? All Slater and Shine are providing now is the final balance of every year, without a breakdown of the other three numbers in between. If there is no other good reason, then one of the main concern is both companies are hiding it because they are often over estimating WIP, and using acquisition and taking on many new cases to boost the WIP account's final balance number. What do you think?